The Ultimate Guide to Tax Planning for Companies in Canada in 2021

In Canada, all extractive companies are legally required to publicly disclose their tax payments to the government. While that’s great for achieving wider tax transparency goals, it also increases the need for smart and efficient tax planning. Due to the events of 2020-2021, tax planning for companies Canada is more important than ever.

Tax Planning for Canadian Companies in 2021 – What Has Changed?

Tax planning is the process of projecting 12 months of future profits, based on business data from the previous 9-10 months. Businesses that carry out this strategy don’t end the financial year with large sums of owed income. They position themselves in the market by making smart investments and reducing their tax liability.

However, tax planning in 2021 is more complicated than ever. In these uncertain times, business managers are finding it difficult to make accurate projections. Unless these firms partner with experts of tax planning for companies Canada, they won’t be able to maximize their refunds.

Thankfully, top tax planning experts can help companies avoid inflated tax bills. They can make acute investment recommendations to reduce the amount of total taxes paid. Although tax legislation in Canada has changed significantly in the past two years, these experts can help companies stay on track.

Here are some basic services a tax planning expert can offer to a company in 2021 –

  • Tax planning experts address all CRA audit risks their clients face. They prepare their clients to face the scrutiny of CRA audits.
  • Top tax planners enable their clients to take advantage of tax opportunities by cutting down administrative costs. For example, basic administrative costs like rent, the depreciation of office equipment, buying office supplies, etc., aren’t currently important. Smart tax planners will demonstrate that their clients have created remote working systems to cut down these overhead costs. The fewer the administrative expenses, the lesser the taxes.
  • Evaluate whether the company’s existing estate plans are in accordance with the current tax laws. For instance, a tax planner may recommend a cash-stricken company to move its assets for liability protection to tackle current market uncertainties.
  • Create certainty when it comes to all shareholder agreements, shareholders’ wills, business estate plans, etc. Uncertainties regarding these issues often lead to unnecessary tax preparation delays.
  • Tax planning experts periodically review the affairs of their clients. They give comprehensive reviews of the company in general, not just from a taxation standpoint. Tax planning experts help their clients secure their long-term corporate and estate goals.

Calculating Taxable Profits in 2021

In 2021, the taxable income of a company refers to –

  • The corporation’s net business income
  • Investment income (rent, royalties, dividends, etc.)
  • 50% of all capital gains

You can calculate your company’s taxable profit by subtracting all allowable deductions from its gross income for the year. Here are the tax deductions Canadian companies should target in 2021 –

  • Home office expenses (for remote workers)
  • Salaries
  • Additional insurance expenses (due to the pandemic)
  • Maintenance and repair fees – including home repairs for work-from-home business leaders
  • License fees
  • Accounting and legal fees
  • Advertising costs

You can calculate your eligible home office expenses by using the CRA’s calculator. The forms (Form T2200S and Form T777S) that businesses need to fill out are also simplified and easy to understand.

Make sure to calculate your company’s net income using the accrual method. The CRA only allows farmers and fish sellers to use the cash method of calculating net income.

More Opportunities for Tax Deductions

Businesses should also aim to make the most of the Scientific Research and Experimental Development Program. This program aims to encourage Canadian businesses, irrespective of their size, to invest in technologically advanced products and solutions. Companies that make these investments can get income tax deductions, investment tax credits, and other refunds.

Companies must proactively review their affairs to save significant tax-related expenses in the long run. With proper organization and planning, all Canadian businesses can elevate their financial positions.

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